“At the same time, I think the industrial businesses in terms of refining, exploration, petrochemical polymers, there too, the larger pressure which was there up till now, I think that has gone away and maybe we have seen there is delta so very well in each of the products,” says Deven R Choksey, KR Choksey.
When will the time for Reliance come? Market is at an all-time high, Reliance is nowhere close to its all-time high. When will the time for Reliance come?
Even I am asking the same question because as far as the fundamentals of the companies are concerned, they have never been in doubt. On the contrary, I think they are probably much more clear than what they were ever before. Jio platform, retail business, those consumer facing businesses, they definitely show a distinct amount of signs of steady growth, sustainable growth. At the same time, I think the industrial businesses in terms of refining, exploration, petrochemical polymers, there too, the larger pressure which was there up till now, I think that has gone away and maybe we have seen there is delta so very well in each of the products.
So from my perspective, I look at this company from the long term investment of course, I believe that the business of the company remains strong, solid and sustainable.
They continue to grow at a steady pace of growth, even on a larger balance sheet like what they currently have. I believe that the stock requires a follow up as far as the funds are concerned to add the weightage into their portfolio.
Should that happen, then probably I think you are likely to see the larger amount of participation in the stock price of the stock.
But as I say, fundamentally, they have been absolutely convincing. I think it could happen anytime as we are talking today.
Why am I bringing up Patanjali is because this is one stock which is nowhere close to its all-time high and the fact that they have to bring the ownership down and the roadshow has started. What is your view on Patanjali as a stock?
I remain absolutely convinced about the underlying story of the business in each of the vertical. So in personal care, even in food, I guess I think this company has been basically making significant amount of progress. What probably it lacks, I believe, I think is the kind of an approach to sell, I would think. Because currently the way in which I think the products are sold, they are moving stably. I think they have penetrated the hinterland so very well. However, in order to get the premium segment out of this particular product, something which they have started with, I think by creating their own stores, I think they need to get a little bit of more momentum.
Should that happen, then I think there is a margin expansion possibility that is also equally important for this kind of business, which is currently I think not happening as much as one would have expected it to.
So that is where probably I think the influence of right kind of investor could also help.
And I mark my words carefully because I think ultimately I think you require the good quality support as far as I think the underlying process is also concerned that is where some of the right kind of investors would probably help.
In my viewpoint, I think the stock remains relatively more convincing. The growth path is I think relatively more steady. The customer segment has I think remained loyal to them all along.
So in my viewpoint, I think it is a time where probably you need to carve out the niche by way of I think creating some kind of premiumisation in your product categories and that is where probably you could see a higher amount of margin as well. Let us see how exactly things turn out, but I remain confident about the possibilities.
Another stock which I think is worth revisiting is HDFC Life. Insurance really has been the black sheep sort to speak in this entire market rally, and they have just not chipped in. The price action in HDFC Life on Friday, other life insurance companies also, they in a sense outperformed on Friday. Has good old insurance sector rediscovered its mojo?
I think in previous two years, if you see the valuations of these life insurance businesses probably they remain relatively on elevated levels and as a result of which I believe that failed to attract the investors because they are already premium and getting expensive.
But in the last four quarters or so, if you see how the trend has been moving for the new insurance business premium, I think you find that selectively in respective pockets, you are seeing the 20% kind of growth continuing on a yearly basis as far as the new business premium is concerned.
HDFC Life in particular has created a portfolio which is quite a balanced portfolio. On one side, they have got a single premium policies, the par and the non-par policies that they have, and as a result of which I think the basket is quite equally distributed.
So in a given situation, this company will steadily grow. They will not grow exceptionally fast, neither they will go down I think very badly in a bad situation.
They will remain steady growth providers. And that is what is probably market is adjusting to, I believe, as far as I think the understanding of the business is concerned.
Maybe as I explained earlier, the price part has always remained I think a little bit more premium because of a variety of reasons in earlier period that also got adjusted.
I would like to believe that this business is expected to provide around 20% plus kind of a return on a yearly basis if it remains in this kind of a steady format for a good period of time hereafter.
Wanted your take regarding the railway stocks? They have been chugging along quite nicely. Today of course there was that initiation that came in from Antique on Titagarh talking about an upside of almost Rs 150-200. Do you concur with the view that these railway stocks and the capital good names is the space to be in?
Yes. I think given the fact that the government is the biggest spender today in infrastructure space, in railways included in it, I believe that there is no second thought or no question asked on this particular subject of you seeing higher amount of visibility of order book.
I think government has already laid down the roadmap for 10 years, that they want to spend about Rs 110 crores in building the infrastructure in the country over 10 year period.
This year’s budget has been set for Rs 10 lakh crore, last year I think it was Rs 7.5 lakh crore. So obviously I think a good share of money is definitely flowing towards the infrastructure segment and railways I think definitely getting larger chunk out of it as well. In my viewpoint, I think the railway stocks will continue to see steady to higher rate of growth because of this particular spending by the government.
So demand side scenario remains absolutely very strong and convincing. On the other side, I think you have the challenge in some of expanding your margins. And that is where I think one will have to be little bit more mindful about selecting the stock in the portfolio because being government companies or government is a main buyer, I think these companies do not get higher amount of margins. And as a result of which I think the challenge would be always that they will like to execute larger order book but I think at a contained margin.
Given that situation, any kind of a premium valuation in the stock price would mean that I think the stock will probably underperform over a period of time.
So that is where I would be mindful about it that whenever I think market gives opportunity at the corrected valuation, some of these stocks could remain a good opportunity to buy or pick up. I think February-March was relatively a decent period in which probably we ended up getting some opportunities. Similar opportunities if we look at in the future, probably I think they should be considered for investment at a lower valuation.
What about defence now with this Prime Minister’s impending visit to the US, the focus is back on the defence names. Do you think the upside is already priced in because it is a long gestation period, it is not going to turn overnight and you will not get the revenues just say in a quarter or two for these companies?
I guess it is more or less the same rationale which is coming up here too that on one side you have the defence portfolio opening up, you are getting a higher amount of visibility for order book, demand side scenario remain intact for most of the companies.
On the other side, the margins are going to be tight, they are not going to be so easily expanding. And at the same time, I think the valuations will run up a little ahead of time because of the positive news flowing in.
Given that kind of a situation, I would like to believe that while the fundamental prospects remain very strong and convincing for defence as a sector along with railways, I would like to believe that we will have to buy when the market is giving you a valuation which is neglected or relatively more attractive.
I will call it simply in one word that where the margin of safety is available. Should that be the situation that would be a time to buy into some of the defence stocks. I remain positive, but for the reasons which I explained that any early attempt of making the valuation reach would probably fail the investors and they will have to settle with the stock at a costlier price in their portfolio. So buy when market gives opportunity at lower levels.